5 Ways To Ensure Your Budget Includes Innovation

Innovation is a “squishy” idea. It’s one of those things that everyone loves to talk about and believes is important, but when push comes to shove, innovation often gets put on the back burner.

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Why?

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Because there are so many competing priorities in your business. Simply maintaining the status quo often requires a Herculean effort. Daily operations are a swirling vortex, consuming attention and finances, while simultaneously blocking out forward thinking.

From 1998-2006, Nokia was a massive player in the mobile phone industry. They were constantly innovating and as a result sold over 1 billion phones. But in 2007, things started to go awry. Apple released the first iPhone, which completely changed the mobile phone market. As Apple continued to refine the iOS operating system and the accompanying app store, they created a constant stream of new innovations for customers to enjoy.

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Nokia, on the other hand, clung tightly to their Symbian operating system, despite a number of deficiencies that directly affected the consumer. And while they continued to add new features to each phone, they were only slight improvements.

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By 2011, Apple overtook Nokia in the smartphone market. By the time Nokia finally acknowledged the extent of the problem and partnered with Microsoft to implement the Windows operating system, it was too late. In 2014, they sold their Devices & Services division to Microsoft.

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Nokia failed to innovate and was eventually crushed by those companies that did innovate.

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History is littered with such examples. Kodak spent billions developing digital cameras but didn’t have the innovative capacity to figure out how to leverage their technology into the exploding smartphone market. Blockbuster, which once dominated the movie rental market, couldn’t keep pace with Netflix and filed for bankruptcy in 2010.

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The point is simple: companies that don’t consistently innovate will eventually fall behind those that do. The further they fall behind, the harder it is to catch up and the bigger the consequences.

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But while very few people will disagree with the need for innovation, making space in the budget for innovation is something altogether different.

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Which brings us to the critical question: how do you ensure that your budget includes innovation? ‍

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Here are 5 specific tactics.

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1. Create A Culture Of Experimentation

Innovation will never be a significant part of the budget if a culture of experimentation doesn’t first exist.

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Consider all the staggering innovations Amazon has created:

Kindle

1-click ordering

Amazon Prime

Dash buttons

But what many people forget is that Amazon has also had numerous staggering failures. The Fire phone. Amazon Destinations (travel booking). Endless.com (a high-end fashion site).

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For every smash hit, they’ve also had a giant flop.

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Amazon has become one of the wealthiest companies in the world by embracing experimentation and a willingness to fail.

One area where I think we are especially distinctive is failure. I believe we are the best place in the world to fail (we have plenty of practice!), and failure and invention are inseparable twins. To invent you have to experiment, and if you know in advance that it’s going to work, it’s not an experiment. Most large organizations embrace the idea of invention, but are not willing to suffer the string of failed experiments necessary to get there.

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If you want to make space in your budget for innovation, you need to first work to create an overall culture of experimentation. As Bezos says, failure and invention (aka innovation) go hand-in-hand.

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Before you get into the nitty-gritty of dollar amounts and revenue projections, think big picture about the company culture.

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2. Push Benefits Over Finances

When it comes to budgets, it’s easy to focus primarily on how innovations will affect the bottom line. And while that certainly needs to be part of the discussion, the primary focus should be on how the innovations will benefit both the company and the customer.

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Consider why the iPhone was so successful. It completely changed how people communicated, listened to music, browsed the internet, got directions, and a thousand other things. When an innovation benefits the consumer, it almost always ends up increasing revenue.

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James P. MacLennan, SVP & CIO at IDEX Corporation, puts it this way when speaking about IT innovation: “Make the case that shifting resources will drive customer satisfaction or drive revenue, not cut cost. This is where IT has to get its marketing, sales and finance hat on.”

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So when making the case for an innovation budget line, frame the conversation in terms of how innovation will help the company add value.

3. Propose Small Bets

It’s much easier to sell a $10,000 innovation budget than a $1 million one, especially if your company doesn’t have a history of successful innovation. Proposing small bets on innovation minimizes the risk stakeholders feel and also allows you to experiment until you find the innovations that really add value.

Do lots of little experiments, not a gigantic big one. CFOs understand investment, understand that not all bets pay off, and aren’t going around looking for how many $5,000 or $10,000 projects they can slurp up. If you set it up right, you’ll know pretty quickly [whether it will work].

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When negotiating budget amounts, start small. You’ll have a much better chance of getting innovation into your budget than if you propose massive projects right out of the gate.

4. Reframe Risk Into Potential

When stakeholders consider budget proposals, risk is always a prominent factor in their considerations. The problem is that risk is almost always perceived purely in terms of downside. Lost revenue, reputation risk, and missed opportunities always loom large.

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However, when it comes to innovation, it’s often helpful to reframe the conversation about risk so that it envisions all the good that’s possible.

Funding innovation starts with a fundamental shift in mindset. Innovation funders intentionally trade off probability of success in return for greater potential impact. Instead of just supporting proven, incremental solutions, they focus on transformation—investing in approaches that may have a higher risk of failure, but the potential to be lasting and truly game changing if they succeed.

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Reframing risk into conversations about potential can be a particularly effective strategy when combined with small bets. Taking small bets inherently reduces risk and reframing the conversation gives the entire discussion a positive slant.

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5. Make Space For Innovation

In addition to creating a culture of experimentation, the most innovative companies create space for employees to pursue innovative ideas.

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3M, the company responsible for Post-It Notes, Scotchguard, and numerous other revolutionary products, has consistently allowed their employees to pursue new, innovative ideas, even if there’s no guarantee of success.

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The result has been numerous innovations that generated millions in revenue, which, in turn, has opened up more space in their budget for innovation.

For decades, engineers at the St. Paul, Minnesota, company have spent up to 15 percent of work hours on their own projects, playing with ideas that have nothing to do with their job's mission. The 15 percent rule works a remarkable amount of the time; the best-known success story is scientist Art Fry's creation of Post-its while trying to create bookmarks that would stay put in the church choir's hymnals. By combining various paper coatings with a 3M colleague's adhesive invention, he made the first sticky notes.

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Including innovation in your budget doesn’t always have to be in the form of money. It can also take the form of allowing employees to spend time pursuing new ideas even if they won’t necessarily add to the bottom line.

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And when these pursuits inevitably lead to revenue-creating projects, it’s much easier to make the case for dedicating a portion of the budget specifically to innovation.

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Don’t Be Like Palm

In the late 1990s and early 2000s, Palm was one of three companies that ruled the Personal Digital Assistant (PDA) market. Unfortunately, they failed to recognize the significance of the iPhone and Blackberry and didn’t respond quickly enough.

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Even with HP acquiring Palm in 2010, it wasn’t enough to save the company. Palm’s failure to innovate with the changing market eventually sunk the company.

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If you want to avoid the fate of Palm, Nokia, Blockbuster, Kodak, and so many other companies, it’s absolutely critical to incorporate innovation in your budget. Yes, you may encounter pushback, but don’t give up.

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Get creative if you need to, just as 3M has in the way they promote innovation.

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The saying, “Innovate or die,” doesn’t really tell the whole story.

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Before death comes irrelevance, and companies that become irrelevant eventually die.

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Innovate, stay relevant, and thrive.

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